Rainwater v. National Home Ins. Co.

• Decision Date: 22 October 1991
• Docket Number: 91-2318,Nos. 91-2316,s. 91-2316
• Parties: Charles Philip RAINWATER, Plaintiff-Appellee, v. NATIONAL HOME INSURANCE COMPANY, Defendant-Appellant. NATIONAL HOME INSURANCE COMPANY, Plaintiff-Appellant, v. Charles Philip RAINWATER, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 190

944 F.2d 190

Charles Philip RAINWATER, Plaintiff-Appellee, v. NATIONAL HOME INSURANCE COMPANY, Defendant-Appellant.

NATIONAL HOME INSURANCE COMPANY, Plaintiff-Appellant, v. Charles Philip RAINWATER, Defendant-Appellee.

Nos. 91-2316, 91-2318.

United States Court of Appeals Fourth Circuit.

Argued June 4, 1991.

Decided Sept. 5, 1991.

As Amended Oct. 22, 1991.

Thomas Francis Farrell, II (John F. Anderson, on brief), McGuire, Woods, Battle & Boothe, Alexandria, Va., for defendant-appellant.

Michael S. Lieberman (Bernard J. DiMuro, on brief), DiMuro, Ginsberg & Lieberman, P.C., Alexandria, Va., for defendant-appellee.

Before RUSSELL, PHILLIPS and SPROUSE, Circuit Judges.

OPINION

PER CURIAM:

This appeal raises the question whether a home warranty contract provided for final and binding arbitration in disputes on coverage between a claimant and the underwriter, or whether the arbitration process was to be a mere interlude preceding litigation. The district court found the arbitration provision one for final and binding arbitration and in response to the claimant's petition for confirmation of the arbitration award, entered judgment for him based on his unchallenged cost of repairs. We affirm.

I

C. Phillip Rainwater purchased a house in McLean, Virginia, and as part of the purchase, obtained a Home Buyers Warranty Contract from Home Buyers Warranty ("HBW"), with defendant National Home Insurance Corp. ("NHIC") as the underwriter. The warranty covered certain defects in workmanship and materials, problems with electrical and plumbing systems, and certain qualified structural defects, all of which must first occur during the warranty period. The warranty also contained a section titled, "Section VII--Conciliation and Arbitration." This section provided that a homeowner in disagreement with a coverage decision by HBW or NHIC could "call for conciliation with [HBW] or an arbitration to be conducted by the American Arbitration Association (A.A.A.)," according to the rules of the AAA. This section further provided that "[t]he voluntary dispute settlement process provided herein shall be a condition precedent to the commencement of any litigation by any party to compel compliance with the warranty documents or to seek relief for any dispute arising out of this program."

Within a year of purchasing the house, Rainwater discovered a substantial crack in the foundation. He made a claim under the warranty, but NHIC denied the claim on the basis that the defect in the foundation did not first occur during the warranty period. In denying the claim, NHIC also informed Rainwater that he was required under the terms of the warranty to submit his claim to arbitration "prior to the commencement of litigation." Rainwater then requested arbitration, and sought to have the scope of the arbitration cover the issue of when the defect first occurred as well as whether the defect qualified as a "structural defect" under the warranty, and the reasonable cost of repair. The arbitrator decided, however, to limit the scope of arbitration to whether the defect first occurred during the warranty period and whether it was a qualified "structural defect." The arbitrator did not reach the reasonable cost question because he evidently believed that money damages could not be awarded as part of the arbitration.

After taking evidence the arbitrator issued an award finding that the defect first arose during the warranty period and that it was a qualified structural defect. NHIC appealed the award under AAA rules. In addition, Rainwater requested a modification of the award to provide for monetary damages of $206,500--the amount that Rainwater spent to have the defect repaired. The arbitrator modified the award by directing NHIC to complete the repairs within sixty days, but the request for specific damages was denied. The arbitrator's decision was upheld on appeal.

NHIC then filed this declaratory judgment action seeking a declaration that it was not liable under the warranty. Rainwater responded by filing a motion to dismiss and/or summary judgment and also filed a petition for confirmation of the arbitration award pursuant to 9 U.S.C. § 9. NHIC answered the confirmation petition and moved to dismiss it. The district court consolidated the cases for oral argument and after a hearing granted both Rainwater's motion to dismiss NHIC's declaratory judgment action and his petition for confirmation. The court, after a colloquy with NHIC's counsel, then determined that the monetary amount was "not an issue" and so entered judgment for the amount it cost to fix the defect. NHIC then filed a motion for modification under Fed.R.Civ.P. 59(e), contending that the court was confused and that the amount was in fact disputed even though it was "not an issue" in the case. The court denied that motion. This appeal by NHIC followed.

II

We begin by recognizing the "liberal federal policy favoring arbitration," Moses H Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). That policy holds that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration...." Id. at 24-25, 103 S.Ct. at 941. More important for our purposes, that policy also provides that once an arbitration award is made and the parties agree to entry of judgment then the award should be confirmed unless it was tainted by corruption, fraud, partiality, misconduct, or an arbitrator exceeded his authority. 9 U.S.C. §§ 9, 10. And we note the presumption that one submits to arbitration, as opposed to mediation, precisely because of the binding quality of the process. See 2A Michie's Jurisprudence, Arbitration § 4, at 28 ("[I]t is presumed that an arbitration provision in a written contract was bargained for and that arbitration was intended to be the exclusive means of resolving disputes arising under the contract."). In sum, we approach the issues on appeal here guided by a congressional policy that favors and encourages arbitration precisely because it is thought to be a speedy, inexpensive and efficient way to resolve (as opposed to prolong) disputes without consuming court time.

A

The core question is whether the parties agreed to arbitration as a binding process, one that would bar litigation, or whether the agreement to arbitrate was simply a dispute settlement process that was a condition precedent to litigation. This determination is critical because the Federal Arbitration Act provides that

[i]f the parties in their agreement [to arbitrate] have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, ... then at any time within one year ... any party to the arbitration may apply to the court ... for an order confirming the award, and thereupon the court must grant such an order [with exceptions not relevant here].

9 U.S.C. § 9. Thus, a court has jurisdiction to confirm an award only if the parties have agreed that the award is final. I/S Stavborg (O.H. Meling, Manager) v. National Metal Fasteners, Inc., 500 F.2d 424 (2d Cir.1974).

The starting point of course is the agreement itself, since an agreement to arbitrate is a contract and must be interpreted like any other contract. Saturn Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir.1990). The warranty describes the following procedures to be followed in the event of a disagreement between a homeowner and underwriter on a claim:

Should the Builder or Homebuyer(s) disagree with the Insurer's decision to deny the claim ..., the contesting party shall call for conciliation with [HBW] or an arbitration to be conducted by the American Arbitration Association (A.A.A.),.... The conciliation and/or arbitration process will be conducted in accordance with the warranty conditions described herein and the rules and regulations of the A.A.A. ... The voluntary dispute settlement process provided herein shall be a condition precedent to the commencement of any litigation by any party to compel compliance with the warrant documents or to seek relief for any dispute arising out of this program.

We note that this contract was drafted by NHIC and therefore should be construed against them when ambiguities are present. As support for his position, Rainwater points to the provision in the warranty that the "rules and regulations of the AAA" will apply. At the time of the arbitration, see AAA Rule 1 ("The parties shall be deemed to have agreed to these rules in the form in effect when the request for dispute settlement is received by the AAA."), Rule 26(c) of the AAA provided:

Unless the applicable law or the warranty program, the insurance policy, or another applicable document provides otherwise, the parties to these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.

Based on this rule, Rainwater argues that the arbitration award in his favor, issued pursuant to AAA rules, was intended to be final and consequently must be confirmed. The district court agreed, and so do.

we.

Other courts also have held that reference to AAA rules and regulations is enough to make arbitration binding. In Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1272-73 (7th Cir.1976), which involved arbitration of a uranium supply contract, the court held that although the parties did not expressly agree that arbitration would be binding and judgment could be entered, the parties did agree "to incorporate rules of arbitration into their agreement, thereby establishing the requisite consent to entry of judgment, if the rules so provided." In Commonwealth Edison, as in here, the rules do so provide for entry of judgment. Similarly in Stavborg, 500 F.2d 424, the court held that an explicit agreement to be bound by arbitration and consent to judgment was not required, but could be inferred by reference to rules which do...